ETF Allure: Investors Have Nearly Doubled Allocations to ETFs in Five Years

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"ETF investors continue to demonstrate a strong desire for cost-effective ways to meet their investing goals"

SAN FRANCISCO--(BUSINESS WIRE)--Individual investors continue to demonstrate their affinity for exchange
traded funds (ETFs), and ETF adoption appears to be headed for
exponential growth in the years to come, according to the ETF
Investor Study by Charles Schwab & Co., Inc. On average, ETF
investors say more than a quarter of their portfolios (27%) are
currently in ETFs, up from just 16% in 2012. Looking ahead, more than
four in 10 ETF investors (42%) say ETFs will be the primary investment
vehicle in their portfolios in the future – a sharp increase from 2016
(28%) – and investors expect to have one-third (33%) of their portfolios
in ETFs in five years.

This seventh annual survey explores the attitudes and behaviors of more
than 1,200 ETF investors, more than one-third of whom said they would
put more than $50k into ETFs if given an extra $100K to invest today, up
from 28% who said the same thing last year.

“It has been fascinating to watch attitudes toward ETFs evolve over the
seven years we’ve done this survey,” said Heather Fischer, Vice
President, ETF & Mutual Fund Platforms at Charles Schwab. “Each year,
investors tell us that ETFs play an even greater role in their
portfolios, and all signs point to that growth continuing,” she
observed. “As investors have become more familiar with the versatility
of ETFs, their confidence levels have grown. Half of ETF investors
consider their understanding of ETFs at an intermediate level, and
almost all (93%) are now fully confident in their ability to choose an
ETF that is right for their investment objective,” she noted.

Millennials are ETF obsessed

A generational breakdown of the survey data shows that more than half of
Millennials (56%) say ETFs are their investment vehicle of choice, more
than any other generation. Sixty percent of Millennials surveyed expect
to increase investments in ETFs in the next year, and most (63%) expect
ETFs to be the primary investment vehicle in their portfolio in the
future.

Nearly 60% of Millennials say they use ETFs to reach long-term goals
such as building wealth and saving for retirement, which is consistent
with older generations. However, Millennials are much more likely to
consider holding only ETFs rather than solely investing in individual
securities.

All ETFInvestors

Millennials

Gen X

Boomers

Matures

ETFs are investment vehicle of choice

42%

56%

44%

30%

23%

Expect to increase investments in ETFs in next year

45%

60%

48%

29%

25%

Expect ETFs to be primary investment vehicle in the future

42%

63%

45%

23%

17%

Use ETFs to reach long-term goals

59%

59%

58%

59%

57%

Would consider holding only ETFs instead of individual securities

43%

62%

47%

24%

23%

“Millennials continue to lead the charge when it comes to ETF adoption,”
said Fischer. “Millennials have grown up with ETFs, and because of this
familiarity they seem to be more comfortable than other generations in
embracing them as their investment vehicle of choice – and enjoying the
benefits of low costs, tax efficiency and transparency.”

While only one in 10 ETF investors is currently invested in socially
responsible investments, there appears to be growing interest in these
strategies. Almost half of ETF investors (46%) believe it is important
to invest in socially responsible funds because they want their
investments to align with their beliefs, and half (51%) would invest
more in these strategies if more SRI product education was offered.

Socially responsible investing has already gained traction among
Millennial ETF investors, with almost half (48%) actively seeking out
funds that use SRI strategies, and 63% saying they believe SRI
strategies can help them reach their investing goals.

All ETFInvestors

Millennials

Gen X

Boomers

Matures

Actively seeks out funds that use SRI strategies

30%

48%

32%

14%

9%

It’s important to invest in socially responsible funds because I
want my investments to align with my beliefs/interests

46%

60%

50%

36%

27%

I think SRI strategies can help me reach my investing goals

47%

63%

50%

36%

23%

Cost is king

When choosing an ETF, investors prioritize a low expense ratio (62%) and
total cost (60%) above all else. When evaluating brokerages, the
importance ETF investors place on the ability to trade ETFs
commission-free has risen significantly over the last five years.
Fifty-five percent said the ability to trade ETFs without commissions or
other brokerage fees is the most important or a very important
consideration, compared to 38% in 2012.

“ETF investors continue to demonstrate a strong desire for
cost-effective ways to meet their investing goals,” Fischer said. “While
costs have been trending downward across the industry, it’s clear that
ETF investors still keep an eye on what they’re paying.”

About the Study

The 2017 ETF Investor Study by Schwab is the seventh installment
of an annual online survey of more than 1,200 individual investors
between the ages of 25-75 with at least $25,000 in investable assets who
have purchased ETFs in the past two years. Conducted by Koski Research
from June 6 – July 15, 2017, the study has approximately a three percent
margin of error. Survey respondents were not asked to indicate whether
they had accounts with Schwab. All data is self-reported by study
participants and is not verified or validated.

About Schwab

At Schwab, we believe in the power of investing to help individuals
create a better tomorrow. We have a history of challenging the status
quo in our industry, innovating in ways that benefit investors and the
advisors and employers who serve them, and championing our clients’
goals with passion and integrity.

Investment returns will fluctuate and are subject to market volatility,
so that an investor’s shares, when redeemed or sold, may be worth more
or less than their original cost. Unlike mutual funds, shares of ETFs
are not individually redeemable directly with the ETF. Shares are bought
and sold at market price, which may be higher or lower than the net
asset value (NAV).